Higher state spending to drive economic recovery

MANILA, Philippines — The economy will bounce back from the decline it sustained during the pandemic despite the widening fiscal deficit as the government speeds up spending on programs that will contribute to the recovery of multiple sectors, a ranking finance official said.

In an economic bulletin, Finance Undersecretary and chief economist Gil Beltran said the economy would bank on the fiscal and monetary sectors to push its rebound onward.

Beltran said expenditures increased last year to cover for socioeconomic programs, particularly Build Build Build (BBB), conditional cash transfer (CCT) and universal health care (UHC), as part of measures to boost commercial activities.

Likewise, Beltran said financing these programs would secure the economy’s recovery in the long run. The economic team, for one, expects infrastructure spending to amount to P1.29 trillion or 5.8 percent of gross domestic product (GDP) by 2022 and would average 5.4 percent of GDP until 2024.

“The COVID-19 pandemic has made the road bumpy, but the fiscal sector, along with the monetary sector, has provided a shock absorber to the economy and continues to provide support for the economy’s recovery. While tax revenue intake has declined last year, spending has actually increased,” Beltran said.

“Among others, we had existing socioeconomic programs – CCT, UHC, BBB – in place before the pandemic such that we did not really have to go back to the drawing board in order to plan for the country’s economic recovery,” he said.

The budget deficit in the first semester ballooned by about 28 percent to P716.1 billion, although this was lower than the P1.01 trillion forecast of the Cabinet-level Development Budget Coordination Committee (DBCC).

The government improved its revenues by more than two percent to P1.49 trillion,beating the DBCC figure of P1.42 trillion as the Bureaus of Internal Revenue and Customs recorded higher collections.

However, economists warned the government may end up breaching the international threshold of 60 percent for debt-to-GDP ratio with the budget deficit expanding. Expenditures in the first half jumped by nearly 10 percent to P2.2 trillion.

ING Bank senior economist Nicholas Mapa said the economy may ring the alarm bells on debt if the budget deficit keeps on swelling for the rest of the year. The economic team expects debt-to-GDP ratio to rise to 59.1 percent by the end of 2021.

“With the deficit widening, it is getting more difficult to avoid having debt-to-GDP [ratio of] above 60 percent for 2021 and beyond,” Mapa said.